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Wednesday, August 10, 2011

Invest in your TMR & maximize profits

The equation for profitability is simple: Income-Costs = Profits

Increased profits can be achieved by increasing income, lowering costs, or both. In last month's issue of Progressive Dairyman, Elliot Block recommended that dairy producers switch their focus from the cost side of the equation to the income side because it is almost always more profitable:

"Rather than trying to identify which feeds can be removed to quickly shrink feed bills, think of the ration as an investment. The ration delivered to the feedbunk must allow cows to maximize production, remain healthy and become bred in a timely manner."

To generate more profits, Block suggests the use of marginal thinking in making decisions. To think marginally, two numbers related to feed costs must be identified:

*See "Table 1" below for an example of how these numbers can help determine greatest IOFC. For further explanation of the "math" behind marginal thinking, click here.

In the example above, feeding a cow to produce 90 lbs. of milk costs $0.90 more than feeding a 70-lb. cow. Based on a milk price of $16/cwt., the 90-lb. cow generates an additional $3.20 in milk revenue cost. This is far greater than the additional feed cost, resulting in an IOFC (income over feed costs) increase of $2.30.